Scientists at Huntsman Cancer Institute (HCI) at the University of Utah write in Cell Reports ("MEK Inhibitors Reverse Growth of Embryonal Brain Tumors Derived from Oligoneural Precursor Cells") that they have identified an existing group of drugs...

Film actor Nagarjuna is out of the Meelo Evaru Koteeswaradu (MEK, the Telugu variant of Kaun Banega Crorepati). The actor, who is also a studio owner and entrepreneur, has opted himself out of the su...

Southern Company (NYSE: SO) and PowerSecure International, Inc. (NYSE: POWR) disclosed that they have completed their merger that was worth about $425 million. As a result, PowerSecure has become a fully owned subsidiary of the...

ATLANTA (dpa-AFX) - Southern Company (SO) and PowerSecure International,
Inc. (POWR) announced that the U.S. Federal Trade Commission has granted early
termination of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act ("HSR...

Domino's Pizza, Inc. (NYSE: DPZ) shares gained 8.16 percent to reach a new 52-week high of $127.23 after the company reported upbeat Q4 results.
PowerSecure International, Inc. (NYSE: POWR) shares touched a new 52-week high of $18.48 after the...

PowerSecure International is a participant in the oil well services and equipment sector of the energy industry. It focuses on developing solutions for energy efficient power grids for electric utilities and their commercial, institutional, and industrial customers.

Industry Analysis

Porter's Five Forces Analysis

One of the best ways to understand PowerSecure International’s competitive environment and strategic position is though a Porters Five Forces analysis.

PowerSecure International faces little threat of new competitors overall in their industry. Because PowerSecure offers such a wide range of products, they are classified in the business service industry. Their UtilityServices such as energy, gas and oil, and Interactive Distributed Generation systems provide utilities and business customers with smart grid capabilities. Because these services require mass amounts of infrastructure, there are large capital requirements for new utility companies. New utility companies must also build a large customer base rapidly enough to cover the cost of installing new infrastructure. PowerSecure has several other lines of products ranging from consulting services, to LED lighting used in stores and streetlights, to commercial lighting. While breaking into this market requires less capital, new competitors will not have access to distribution at the same scale that PowerSecure does, or the advantage of established customer loyalty[1].

Contents

There is a low threat of substitute products or services in PowerSecure’s segment of the business services industry. While consumers may have the choice of switching between a handful of utility companies, most do not have the option to forgo energy altogether. Although solar energy, as well as other green alternatives are available, most have high switching costs and are relatively difficult to substitute.

PowerSecure’s customers have fairly low bargaining power. Because there are only a handful of companies that supply utilities, consumers do not have many options, and a common result of their being so few firms is uniform prices across the market. Utility prices are often a function of supply and demand, and while it is common to see a spike in prices due to an increase in demand, it would be rare to see PowerSecure lower their prices below normal, because demand for energy will never truly cease to exist.

PowerSecure’s suppliers have relatively high bargaining power over the utility company. Because PowerSecure relies on its suppliers for raw material to provide energy, their suppliers can charge as much as they like. Since there are few substitutes, PowerSecure is forced to pay any increase in prices. PowerSecure can in turn pass these expenses on to their customers, which will lower demand slightly.

PowerSecure faces fairly intense competitive rivalry within the business services industry. Because providing energy services can be costly, it is important for providers to retain the maximum amount of clients possible. PowerSecure tries to stay ahead of the competition by focusing on innovation, like their EfficentLights and NexGear technology, as well as creating a broad and differentiated product and service line[2].

Overall, PowerSecure's profitability should realize competitive advantages through a fairly easy industry where new entrants are far and few between and POWR has differentiated itself to create its own niche in the market.

It is important to note, PowerSecure is a small player in its industry, but is also a unique company at that. Its competitors used in the following financial comparisons are loosely based on certain aspects of the company because no one company performs all the same tasks as POWR.

Competition Details

Matrix Service Company(NASDAQ:MTRX) focuses on providing repair and maintenance services to energy and energy related industries. Many of its services go to expanding operating facilities of these utility companies[4]. McDermott International(NYSE:MDR) primarily delivers production facilities for offshore oil projects and their customers typically include national and energy companies who specialize in offshore drilling[5]. TETRA Technologies, Inc. covers production testing and services to offshore sites which include well plugging, decommissioning, and diving. It's sectors cover almost all services and maintenances which can be done for oil drilling companies[6].

Return on Investment Capital (ROIC) and Operating Margin

Return on investment capital is a solid measure in any industry to compare several companies with one another. The higher the ROIC, the more efficient the company is at generating revenues off a set amount of capital.

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POWR's Industry ROIC and Operating Margin

As seen in the chart, POWR has the lowest positive ROIC at 0.82%. McDermott is a dominant leader in both ROIC and operating margin with 17.56% and 13.10%, respectively. PowerSecure's low ROIC is mostly due to an unusually low income after tax for the most recent annual report. Realizing an income of just $770,000, compared with its previous years' $7.64 million and $2.79 million, shows very little capital generated off its debt and equity. Steering away from ROIC and looking at POWR's operating margin, POWR holds the second lowest operating margin among its competitors at -2.0%. This is due to its negative operating income of -$1.95 million and indicates the company may begin running in to trouble paying off its fixed costs. This may be the reason why PowerSecure's long-term debt is so large compared to the size of the company. POWR is roughly 3% below the competition's averages in both ROIC and operating margin.

Asset Turnover and Asset Breakdown

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POWR's Industry Asset Turnover

POWR proves to be slightly better in asset turnover than it showed as a company with ROIC and operating margin. At an asset turnover of roughly .84, It fall just short of the average between competitors; however, it boasts the second highest turnover between the four companies. This high average is skewed by Matrix Service Company's asset turnover of 1.88. These numbers indicate the efficiency of each company to generate revenue off a set amount of assets.

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POWR's Asset Breakdown

To attempt to analyze POWR's asset turnover, their balance sheet assets for 2010 are located in the pie chart to the right. Current assets account for over half of its total assets and of these current assets, receivables make up approximately 67% of them. Excluding its large amount of receivables, PowerSecure has a fairly healthy breakdown of total assets and its low asset turnover can be blamed on the low revenue of $97.5 million.